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Programming note for new readers: This is an in-depth, chapter by chapter review and analysis of the book Your Money Or Your Life. If you haven't yet read the book, you're going to need to read along to know what I'm talking about. Join us! You can buy YMOYL here, and you can find the first post in the series here.

Finally, if you're enjoying and getting value from this series, spread the word! Share your thoughts on YMOYL on your site, or link back to the various posts here. As always, I'm grateful for your support.
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Chapter 3 of Your Money Or Your Life is all about organizing and understanding the information you gathered in Chapter 2. You've already written down all of your spending during the prior month. Now it's time to wrap your mind around it.

This is a complete inversion of the idea of budgeting, and it's far more sensible than the typical crapola financial advice, which says to create a budget first and then live under it.

Face it: most budgets are exercises in idealization. We usually fill them with overestimated savings goals and underestimated expenses. And then when the inevitable happens and we can't stick to our budget, most of us get discouraged and quit. Or worse, we quit and protect our egos by saying things like yeah, I tried budgeting, but I'm just not that preoccupied with money.

Instead, YMOYL does everything in reverse, and our intrepid authors are really onto something here. Rather than starting with some dumb budget that we spend hours creating and obeying, we start with real spending information we've already gathered. We take last month's money log, take the actual spending items that are in it, and then categorize them. Boom, you've got your budget--and it's 100% factual, not idealized.

Best of all, you now have a powerful tool to measure and manage your spending according to your priorities. Once again, what gets measured gets controlled.

Ignorance is now impossible. Once you've taken a sincere and honest look at a month or more of your daily money log, typical personal finance newbie statements like "Where does it all go? I hardly spend anything!" are now literally impossible for you to make. Impossible. You know where all your money goes.

This knowledge is an incredible trade-off for reading three chapters of a book and spending 30 seconds a day writing down your spending. And this act of self-discovery should feel immensely empowering to you. No longer does money just pass through your hands and through your life. No longer do you have a vague sense of where your life energy goes. You know exactly where it goes.

It is worth it? Okay. Now that you're looking at your true spending activity over the course of a month or more, what do you see? Do you like where your money's going? Which categories get the resources they should, and which get resources they shouldn't? Remember, every dollar spent is a unit of life energy you'll never get back.

You have to ask yourself the most important question of all--is it worth it?--on each of your key spending categories. If you have a noteworthy budget item like a big car lease, an oversize rent or mortgage payment, credit card debt, dinners out that you vaguely remember, and so on, do the math on how many hours of life energy that spending costs you. Is it worth it? You willingly engaged in this activity, you willingly documented it as a spending category, and now you have the power to decide whether to sustain this spending. This is the essence of conscious money management. We'll get deeper into this in Chapter 4.

No shame, no blame: By now, I think I've got a good group of conscious readers participating in this series, so I probably don't need to say this--but I'm going to say it anyway just in case: Remember, no shame, and no blame.

Do you hate the things you see on your daily money log and in your spending categories? Then be grateful, and consider yourself lucky. You had the courage to look honestly at the data, and now you have the opportunity to make life energy-creating decisions based on real facts. Give yourself a serious pat on the back for what you've done. After just a few short chapters and a few hours of work, you've taken a closer and more informed look at your finances than 99% of the people around you. And it's already paying off.

Once again, if you see a big source of life energy waste in your spending, be grateful that you've found it. That's an obvious place where you can start making powerful and substantial changes. Make them.

Now, let's talk about our next steps. What has this process taught you? What actions are you going to take as a result? And where can you create more life energy for yourself? Share your thoughts below.

****************************Appendix/Side Thoughts: 1) "Is this going to be what I do with my life? Is this what it's all going to be about?" This quote from page 79, where "Anita" has a sudden attack of consciousness about her shopping addiction, captures in two sentences the complete hollowness of consumerism. I'm not sure whether the anecdotes in YMOYL are real, fictitious, or a mix of both, but I thought this one really captured the truth.

2) For further reading: I'd like to suggest a companion book to YMOYL that readers should find helpful and inspiring: How To Want What You Have by Timothy Miller. Miller's book focuses on the ideas of attention, gratitude and compassion, all of which play a huge role in your personal happiness and satisfaction, and all of which are mental states that you can learn to cultivate, exercise and strengthen.

It was pure coincidence, but Laura and I happened to read How To Want What You Have at about the same time we read YMOYL, and the books turned out to surprisingly complementary resources. We found that How to Want What You Have took many of the key ideas of YMOYL beyond just the arena of money. I highly, highly recommend it.

3) "In fact, it's fun!" Permit me to take a quick break from compassion and gratitude... so I can enjoy a little sarcasm. Because I was laughing out loud at the "it's fun!" quote on page 79, and I was shrieking with laughter at unintentionally funny quote on page 84, where the authors tell us that perfecting your spending categories is "a lot of fun" and "better than most card, TV and board games all rolled into one."

4) Applying the 80/20 Rule: Finally, one thing I'd add to this chapter would be a brief discussion of the 80/20 Rule. The key implication of 80/20 thinking is that you can usually make gigantic improvements the output of a system with minor changes to a small number of inputs.

Let's put this in daily money log terms. Once we've completed the exercise of logging and categorizing our expenses, most of us will find one or two disproportionately large sources of life energy waste. The beauty of the exercises in Chapters 2 and 3 is that they'll clearly expose your biggest sources "not worth it" spending. Start there. Wrap your mind around the life energy costs of these spending categories. You may find that a few consciously-made changes could drive enormous improvements to your personal bottom line.

Long-time CK readers know all about my fetish for applying the 80/20 Rule to everything. 80/20 really does work, and it's particularly effective in the financial arena. What examples of 80/20 were you able to turn up while doing this exercise?

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7 comments:

Diane
said...

I see not much difference between doing this and doing what I did, which is to set a budget, track against it, and adjust it as needed. With the added disadvantage that if you do this you can actually set your "budget" higher than your income.

But really that's a small quibble. Whether you set budget first and then track (which makes sense to me), or track first and then call that a budget (you can defect spend this way...), the important thing is to track it.

Agreed Diane, on some level it's just a semantic debate. But whatever you call it, the point is to be truly aware of your spending. I guess for me the insight is that tracking your spending first (rather than creating the budget first) eliminates the risk of "budget idealization." But not everybody stumbles over this issue (including you!).

I downloaded YMOYL as an audio, so I can't look up the quotes you mention, and in fact, some don't ring a bell, so I am wondering if what I got was just a short overview. (I was amused too by the one about what FUN it is--really, now?) It does seem to go rather quickly, and there are no chapter divisions. I may have to order the book from the library.

Anyway, on this part...my trouble is that I've been tracking spending for years, but I'm not very good at doing anything with it! While I can give a detailed account of where our money goes, I still can't seem to figure out how to change it. Perhaps this is partly because my husband is pretty much uninterested in it. He prefers not to touch our finances, and I am not a good decision-maker.

Ronda, great comment. First, yes, I recommend you check out a physical copy of the book at your library. I have and I will be referring to specific page numbers and specific quotes, so having the book available will probably make this series more useful to you.

As for your question about what to do about the spending you track, just wait for Chapter 4.

And don't doubt your decision-making. We're all going to make a mix of good and bad decisions with our money over the course of our lives. The simple fact that you track your spending and are aware of where it goes puts you miles ahead of most people on this front. That in itself is a brilliant decision.

Budgeting for me has always been "idealized", and my spending would rarely align with my ideals. I got around this, to some extent, by simply paying myself first in savings and spending only what's left without any kind of tracking. With this process, I could build my savings without worrying about staying within budgetary categories. But even with this system, I could be better utilizing the money I do spend month to month.

Breaking expenses down into _personal_ categories provides helpful insight into where I am spending my life-energy, and gives me good data to work with in refining my choices.

"What has this process taught you?"It is surprisingly helpful to compare the totals for each category of spending _against each other_. It's also interesting to compare the relative --value-- of each category against the amount spent within that category. There's more to say about this, but I've already read chapter 4, and it relates to the concepts therein. :P

"What actions are you going to take as a result?"Keep tracking my spending (via pen and paper), so that I can see how my expenses ebb and flow over a longer period of time, as well as see how they evolve as I apply the concepts of this book.

"And where can you create more life energy for yourself?"I'm proud to say that I was largely pleased with the allocation of life energy; however, I'm embarrassed to say that (while I am not a daily customer) Starbucks gets more of my money than I would like. Granted, some of that money is actually providing true value, as I go sit and read/study in a Starbucks from time to time, and the environment, experience, and productivity while I'm there are well worth the amount spent. Unfortunately, those productivity-rich drinks do put a taste in my mouth, and there are other times that I stop in for a drink ---to go--- based on a craving, and those are purchases not truly worthy of my life energy.

Regarding your Appendix/Side Thoughts:

2) Oh yes, just what I need. MORE books to put on my "to read" list... O_O But actually, it sounds great, so on it goes!

3) HA! That quote made me do a double take when I first read it. They couldn't have REALLY said that... did they? Oh... they did.... o.O

4) I love the 80/20 rule as it applies to fitness and eating healthy, so I will have to consciously keep it in mind as I review my YMOYL data. Thanks for the reminder. :)

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